Donors are apparently ready
to increase funding, but only
if the situation on the ground
improves

Palestinians must be given hope for the future by Israel if their economy is to be revived after next year's Gaza pullout, World Bank president James Wolfensohn said in an interview that was published on Tuesday.

"If you are trying to withdraw (from Gaza), that's a wonderful thing, but if you don't give hope at the same time ... you're not really achieving very much," Wolfensohn told Israel's Haaretz daily as he began a two-day visit to the region.

"On Israel's part, there is a need to dismantle the system of restrictions on the movement of Palestinian goods and services put in place since the beginning of the intifada, which the World Bank has identified as the proximate cause of today's Palestinian economic crisis," the World Bank said in a statement.

It was Wolfensohn's first Middle East trip since the 2000 outbreak of a Palestinian revolt that, together with Israeli military clampdowns, has undone economic progress in years of relative peace and plunged most Palestinians into poverty.

Wolfensohn told Haaretz that donors were ready to increase levels of aid to the Palestinian Authority by $500 million a year if the situation on the ground improved.

During his trip, Wolfensohn is set to meet Israeli and Palestinian officials and discuss a World Bank plan for rehabilitating the Palestinian economy after the pullout from Gaza.

"The facts are that if we go out and raise money for a strengthening of a Palestinian area or a state, the only way to get money for that is if that area is viable," Wolfensohn told Haaretz.

"The donors, having gone through intifada, are going to want to feel that if they put in an additional $500 million a year ... that it is being done seriously and with an opportunity for a viable area."

Wolfensohn was due to meet Israeli Prime Minister Ariel Sharon, Defense Minister Shaul Mofaz and Foreign Minister Silvan Shalom. On the Palestinian side, Wolfensohn is due to hold talks on Tuesday evening with the new Palestine Liberation Organization chairman Mahmoud Abbas and Palestinian Finance Minister Salam Fayad in the West Bank town of Ramallah.

"Wolfensohn will review steps that the two parties need to take if they are to establish the preconditions for economic growth in the Palestinian territories (West Bank and Gaza Strip)," the World Bank statement said.

"On the part of the Palestinian Authority, there is a need to combat Palestinian (militant) violence, restore internal law and order and create a governance environment attractive to potential investors," it added.

The World Bank currently donates an average of $930 million annually to the Palestinian authority, down from $1.25 billion in 2002.

"When it is possible to report that a climate conducive to real economic growth has been established, the bank is committed to convening a donor pledging conference."

Donors would then be asked to significantly increase their current disbursement level of around $930 million per year.

The Palestinian economy minister said earlier this month there was a need $1.3 billion to $1.4 billion in aid annually particularly for infrastructure projects including air and sea ports, to help with the 2005 budget and to create jobs.

The Palestinian economy has been paralyzed by stringent Israeli restrictions on the movement of goods and laborers in the occupied West Bank and Gaza Strip, a policy that Israel claims is necessary in order to thwart militant attacks.

Human rights groups and Palestinians say Israel's measures amount to collective punishment of the roughly 3.6 million Palestinians living in the two territories.

International aid to the Palestinian Authority has fallen sharply because donors could not see how their money was being spent given serious corruption and lack of transparency in handling of public funds, Western diplomats say.

But they say that Palestinians have made progress on reforms. The November death of Palestinian President Yasser Arafat, who was shunned by chief mediator the United States as an alleged obstacle to peace - and the rise of veteran moderate Mahmoud Abbas to succeed him - have revived Middle East diplomatic and rebuilding efforts.

Sharon has vowed to pull 8,000 Jewish settlers out of the Gaza Strip and hundreds more from four other small Jewish enclaves in the northern West Bank by the end of 2005.

Abbas, who has branded militant violence a mistake and wants both reforms and fresh statehood talks with Israel, to reopen is widely expected to win a Jan. 9 presidential election.

UN report paints a dark picture of Bethlehem

BETHLEHEM, West Bank: The intifada has had a devastating effect on Bethlehem, paralyzing its economy, scaring off tourists and increasing Christian emigration, a UN report said Monday.

"Bethlehem is surrounded by 78 physical obstructions," erected by the Israeli Army, cutting it off from Jerusalem and some of the rest of the West Bank, the UN report said.

Apart from 10 checkpoints and 55 dirt mounds blocking roads, Bethlehem is partially dissected by 10.4 kilometers of separation barrier, the report said. When finished, the barrier will stretch for 63 kilometres around the town.

The tourism sector, vital to the economy of the town where the Bible says Jesus Christ was born, has been decimated since the intifada broke out in 2000, the UN said.

The number of tourists has dropped from 91,726 in 2000 to 7,249 in 2004, says the report.

The number of hotel rooms occupied has dropped from 22.1 percent in 2000 to 2.4 percent in 2004, it says.

The lack of economic and social options has led to the emigration of 9.3 percent of Bethlehem's Christian community since 2000, it adds.

The total population of Bethlehem is 61,000, not including some 15,000 Palestinians living in refugee camps around the city.